Capacity - Infants - Question 8 April 2009

Question 8 April 2009

“Children have limited contractual capacity. Unfortunately, the law has developed in a piecemeal fashion, with the result that the rules of law are unnecessarily complex.” Discuss.

The courts have always been mindful of the need to protect those who are incapable of exercising a full and free consent in the formation of a contract by virtue of their age; this now has legislative expression. In law anyone under the age of 18 is considered to be a minor and thus contracts with minors are subject to certain protections afforded by both the common law and the Infants Relief Act 1874.

The general rule is that a contract made with a minor is voidable at the minor’s option. There are however exceptions to this rule and it is these exceptions that make the law on this issue so complex because as the quote states “the law has developed in a piecemeal fashion...”

One exception to the rule is if the subject matter of the contract, with the minor, is considered necessaries. The Sale of Goods Act 1979 S.3 defines necessaries as goods that are suitable to the condition in life of the minor and to his actual requirement at the time of sale and delivery. Also, that the minor need only pay a reasonable price for the necessaries; which may not be the same as the contract price. Necessaries can include services such as education. In the English case of Nash v Inman the defendant, a tailor, supplied eleven fancy waistcoats and other items of clothing to a Cambridge undergraduate at a cost of £123. It was held that the tailor could not recover the money as the clothes were not “necessaries”, the minor had a sufficient amount of his own clothes.

Another exception to the rule is where a minor is bound by a service contract which is for their benefit. This does not mean that a minor is bound by any contract which is beneficial but only those which relate to an employment or similar contract. A good example of this exception can be found in the case of Chaplin v Leslie Frewin (Publishers) Ltd. The defendant agreed to publish a minor’s autobiography which was to be written by journalists from the information they received from the minor and his adult wife. The minor approved the final proofs and received advanced royalties from the defendants. Before the publication of the book the plaintiffs claimed that the book was inaccurate and he applied for an injunction to prevent the books publication. It was held that the contract enabled the minor to become an author and so was on the whole for his benefit. The court decided that an injunction would not be granted.

Under the Infant Relief Act 1847, Sect. 1 all contracts other than those for necessities are void where the minor enters into a contract to receive goods or a loan. The Act does not work in reverse. Thus, where the minor gives a loan or supplies goods, the Act does not apply. It appears that the title to goods will pass under such an arrangement even though it falls out of the Act, unless there is a complete failure of consideration. In the case of Bateman v. Kingston the minor represented himself to be of age, and the money was advanced for necessaries, but the plaintiff failed to recover, as the notes he sued on bore interest. On a bill not carrying interest and for necessaries, the Court thought it might be different.

In almost all contracts with minors, the minor does not have to deny the contract to escape liability. However a number of contracts result in a permanent benefit bestowed upon the minor subject to recurring obligations. These have received special treatment, although (as Treitel points out) there is no logical reason why this should be so. However, the case law establishes that contracts concerning land, company shares, partnerships, family settlements and insurance are all voidable by the minor only if he denies the contract.

Where a minor agrees to buy shares in a company then the contract is voidable at the minor’s option. In Steinberg v Scala (Leeds) Ltd. a minor applied and partly paid for shares in the defendant company. However 18 months after the defendant company had allotted the minor the shares she decided to rescind the contract and also sued to recover the money she had initially paid to the defendant company. The court held that the plaintiff was entitled to rescind the contract and would not be liable to make any further payments. However she was not entitled to recover the money she had initially paid the defendant company because there was a sufficient amount of consideration as she had been allotted the shares.

This area of contract law may need to be rethought and areas within it cleared up as there is no need for a lot of the confusion that it can lead to.

Question 3 April 2006

Question 3 April 2006

Paul Ltd. made a promise to Chuck and agreed to reduce his rent. Now that the flooding problem has been rectified he wants to know if he can claim full rent for the two year period during which the rent was reduced. To take an action in a case like this one may think that it would be sufficient to prove that the promise, from Paul’s Ltd. to Chuck, is not enforceable as there is a lack of consideration. Generally for a promise to be enforceable it must be shown that the person to whom the promise was made has supplied something in return for that promise, something by way of quid pro quo, consideration. Chuck did not give any consideration for the promise from Paul Ltd. However there can be exceptions to the general rules of consideration. One of these exceptions is known as promissory estoppel.

Promissory estoppel essentially provides that where a person makes a promise which he reasonably expects will be acted upon by the promisee - then such a promise will be enforceable if non-enforcement would lead to injustice. An example of promissory estoppel being used as a defence and a case which is very similar to the case at bar, is Central London Properties Trust v High Trees this case involved the owner of a block of flats who leased the whole block to a property company who in turn leased the individual units. This agreement was entered into before WWII when demand for property in central London was high. The war began and demand dropped, the owner voluntarily agreed to reduce the rent by half during the war and after the war when demand raised again the rent went back to the original sum. The owner company went into liquidation and the liquidator took an action for the arrears of the rent. They argued that the owner’s promise to extract only half of the rent was not enforceable since it lacked consideration. Denning MR ruled that the liquidator was estopped from denying the earlier promise not to enforce the full rent. This case concerned a variation of the terms of a contract. After High Trees and WWII this was used more frequently by the courts as a method of preventing hardship on people as a result of changes in contracts during the war being unenforceable.

The principle only applies where the promise of a waiver is given voluntarily; an example of this is in the case of D&C Builders v Rees where a debtor owed £480 to a small firm of builders. They agreed to accept £300 in full settlement as they had financial difficulties of which the debtor was aware. The court held that the debt had to be paid in full as the plaintiffs were forced to make the promise, it was not voluntary.

There are other rules, however, to where this principle applies:

• Promise; There must be a promise made which is intended to affect the legal relationship between the parties. It doesn’t have to be express can be implied. It must be clear and unambiguous, must not be equivocal.
• Reliance; Reliance on the promise is essential before it will be treated as enforceable. Denning J pointed out in Alan v Nasr Export & Import what must be shown is that the claimant conducted his affairs on the basis of the promise and that it would subsequently be inequitable not to enforce the promise.
• Pre-existing Relationship; Promissory estoppel is not confined to variations of existing contracts but can be applied where there is a relationship based on statutory provision. In Durham Fancy Goods v Michael Jackson (Fancy Goods) all that was required was a pre-existing legal relationship.
• Suspensory Effect; As a general rule promissory estoppel operates only to suspend rights accruing under a contract and not to extinguish them. Thus in High Trees the owners could claim full rent from the date of notification of withdrawal of the promise to the defendants, only the arrears had been placed in suspense. This brings up a question; if the time of the withdrawal of the promise would lead to injustice what would happen, e.g. if the owner company in High Trees withdrew their promise during the war, would the defendants have a case to argue that the promise remains until the end of the war?
• Shield not a Sword; It is often stated that that promissory estoppel can only be used by a defendant as a defence to a claim by the plaintiff. In Coombe v Coombe, Denning J stated:

“The principle stated in High Trees case…does not create new causes of action where none existed before. It only prevents a party from insisting on his strict legal rights, when it would be unjust to allow him to enforce them.”

In that case a promise made by a husband to a wife regarding the payment of maintenance to his wife was not honoured, but her suit for performance of the promise was dismissed since she could not plead it in the affirmative. Presumably it would have been possible for the husband to plead her agreement to the arrangement if he had been sued by the wife for increased maintenance, for then he would be using the doctrine as a defence.

                                                                                               

This case falls on all fours with the High Trees case, it is clear from the previous case law that Paul’s Ltd.’s voluntary promise to reduce the rent to E20, 000 is enforceable despite the absence of consideration. They are only owed E20, 000 per annum per apartment from the date of the promise to the date of notification of revocation of the promise. They are allowed however collect the original sum of E30, 000 per annum per apartment from that date forward.

NOTE: 2^nd part involves breach of contract which I haven’t done yet

In regard to the second problem the contract had been breached when Hugh failed to deliver the goods on time, to avoid the promise, made by the managing director of Paul’s Ltd., being enforced we will look more closely at the rule of reliance on the promise when using the doctrine of promissory estoppel. In determining whether the claimant relied upon the promise you must ask:

i)          Was the claimant justified in relying upon the promise?

It is not sufficient for the claimant to plead on a promise that is clearly a mistake. He must act reasonably in relying on thee promise made. Whether or not the promise is a mistake is irrelevant; what is important is the reasonable response of the claimant upon receipt.

ii)         Was the promise outstanding for a sufficiently long period of time that non-enforcement will result in injustice?

            If the promise is revoked before any reliance has occurred, then promissory estoppel will not apply; but where the reliance has occurred, and the promise is then revoked, the doctrine will only apply where the reliance itself cannot be reversed. In the case of Socité Italo-Belge pour le Commerce et l’Industrie v Palm and Vegetable Oils (Malaysia) the promisor withdrew from his promise within two days. Court held that this was allowable. The short space of time during which the promise had been in existence meant that its revocation caused no injustice to the promise.

iii)        Did the promise induce the reliance?

In practice provided the claimant alters his position after the promise then the onus will be on the promisor to disprove such reliance which is a difficult task.

iv)        Will the enforcement of the original contract result in injustice in any event?

Even where there is reliance it may be that it remains unenforceable since either the claimant is not prejudiced by enforcement of the original contract or the actions of the promisor are not unjust. In the case of Williams v Stern the claimant had purchased furniture on instalments and where under a term of the contract, if payment were not made on a due date, it would be seized by the lender. The claimant asked the lender to give him an extra week to pay the latest instalment and not to seize the furniture. The lender so promised, but three days later seized the furniture when he discovered that it was about to be seized by the claimant’s landlord in satisfaction of arrears of rent. The promise was held unenforceable because:

-          Enforcement of the original contract would result in no injustice to the claimant since the property was being used to satisfy another debt.

-          The revocation of the promise in light of the changed circumstances was not inequitable on the part of the lender. He acted merely to preserve his own rights over those of another.

In this instance it can be argued that the claimant, Hugh, did not fully rely on the promise made by Paul’s Ltd. Hugh was to have the goods ready and delivered for a certain day in failing to do this he breached their contract. The promise of giving one extra week for delivery did not mean that Hugh altered his position in anyway as to say he relied on the promise made. He informed Paul’s Ltd. that the office fittings would not be delivered on the day stipulated in the contract. If Paul’s Ltd. had said that late delivery would not suffice it can’t be said that Hugh would have then delivered the goods on time and not breached the terms of their contract. Therefore Hugh did not rely on the promise so the promise cannot be enforced. The actions of Paul’s Ltd. in refusing to accept the goods because of breach of contract are not unjust and Hugh is not prejudiced by the enforcement of the original contract. Reliance on the contract by Hugh did not occur so the promise cannot be enforced.

April ’05 – Q8 – Restraint of Trade

April ’05 – Q8 – Restraint of Trade

If a contract conflicts with the criminal law or other important legal principles, the court may not give full effect to the contract, or it may give no effect to it at all. The court itself must raise the point even if neither party wants it to happen. The law does its up most to enforce commercial contracts; this involves balancing different policies especially where the illegality is trivial.

The effect of illegality can be that all remedies are denied, some are partly denied (severance), non-contractual remedies are allowed.

Common law illegality can occur in many situations including contracts in restraint of trade. The common law rules are antique nonetheless they remain in full force. However McDermott has suggested that since uncertainty pervades the area it is advisable to plead both the common law and statutory rules.

The doctrine invalidates contracts not to engage in trade except where the contract can be shown to be reasonable from both the parties’ point of views. The usual case is a contract directing an apprentice not to compete with his master. However, some contracts only indirectly restrain trade and it is not fully established whether the doctrine applies to them. Kerry Co-op – An Bord Bainne – must be express covenant to restrain trade.

While the law is unclear it seems that the doctrine will not apply to minor exclusive dealing contracts, Murphy v O’Donovan – entered into the contract freely. Or promises by buyers of land not to trade on the land; Sibra Building v Landgrove. The restraint is invalid unless it can be shown to be reasonable between the parties and restraint reasonable from the point of view of the public.

All restraints within the doctrine are invalid unless it can be shown that:

• The restraint is reasonable as between the parties, and
• The restraint was reasonable from the point of view of the public.

Maken v O’Reilly – as to the public interest it was for the benefit of Irish horse breeders, as for the position between the parties the plaintoff’s sacrifice was considered relatively minor. It can apply in instances of employment, sale of business and exclusive dealing contracts; it doesn’t apply if someone is starting up a trade for the first time. Clearly for the purpose of this question the instance of employment is relevant.

Any substantial interference with freedom to work or freedom to trade may be within the doctrine. In the cases most attention is given to considerations of reasonableness – appeals to the public interests are rarely successful.

The burden of proof as between the parties must be affirmatively proved; it is on the side saying that the agreement was fair, John Orr Ltd. v Orr, however, the burden of proof is reversed if restraint contrary to the public interest is claimed.

Johnston v Cliftonville – restrictions on pay was an interference with liberty. Music cases provide much case law on this area and mainly concentrate on reasonableness as between the parties. Silverstone Records v Mountfield, restraint of trade found due to group and managerial inexperience, and Pahayiotou (George Michael) v Sony, no restraint of trade found as the singer was well advised throughout and had negotiated actively. The music cases show that inexperienced performers are entitled to protection of their interests, but also that, from their record company’s point of view, the rare success has to pay for the many failures.

In ordinary employment cases the courts try and balance the parties’ legitimate interests against each other. A contract cannot forbid ex-employees from using knowledge gained during employment unless the clause protects legitimate employer interests e.g. trade secrets or customer lists. In John Orr the courts applied reasonableness as forbidding one seller from trading anywhere in the world was too restrictive. In Esso v Harpes Garage an exclusive dealership contract was deemed to be unreasonable as it lasted for 21yrs although 5yrs was found to be ok in Continental Oil v Moynihan.

While competition law now governs much of this area it has been noted that the Competition Act, 1991 failed to specifically cover employment agreements.

The effect of illegality is that a contract illegal on its face is completely unenforceable. However, if it merely has an illegal provision it may be cut/severed from an otherwise lawful contract, i.e. simply strike out the unlawful part/clause and leave the rest. Such offence doesn’t render the contract illegal; accordingly the court severs the part that offends. However, the problem is whether internal severance can occur within a clause, i.e. in some instances the clause can be so phrased as to enable the blue pencil to be used to sever those elements that are repugnant. However will severance not occur, Irish courts won’t write anything into the clause Mulligan v Corr. America has a more flexible test.

Frustration, Breach – April ’08 – Q2

Frustration, Breach – April ’08 – Q2

The first issue we must consider is whether the contract is indeed frustrated as Finn has claimed.

Frustration is a defence used in contract law when the existence of a certain state of affairs, that the parties have based their agreement on, has disappeared so the contract has no application to the facts as they are. The law then looks at sort of facts that the contract presupposes and if those facts vanish, then the contract vanishes with them. There is no concern with fairness as such; rather the test is whether the facts have fallen outside those envisaged when the contract was made. A good example of this is in the case of Taylor v Caldwell [1863], where it similarly involved the renting of a music hall but before the start of the letting the hall burned down. Obviously the contract assumed the existence of the hall so it was discharged by the fire.

Frustration was defined in the case of British Movietonenews v London Cinemas where it was stated:

“If…a consideration of the terms of the contract, in the light of the circumstances existing when it was made, shows that they never agreed to be bound in a fundamentally different situation which has now unexpectedly emerged, the contract ceases to bind at that point – not because the court in it’s discretion thinks it is just and reasonable to qualify the terms of the contract, but because of its true construction it does not apply in that situation.”

In deciding whether a contract has been frustrated we must look closely at the parties’ intentions and determine what assumptions the parties were making so we can refuse to apply the contract where those assumptions no longer hold. Frustration can cover foreseen events, if the contract makes no provision for them. This was the case in Neville v Guardian where the defendant contracted with the plaintiff to build a house on his property. The defendant tried to secure access rights for a road onto the property. His attempts failed and he subsequently cancelled the project. The court held that the contract was not frustrated so he was unable to cancel the project on those grounds. Similarly in Davis v Fareham UDC no frustration was found on a contract to build an estate in 8 months. Due to labour shortages the project took 22 months and involved much more expense than was expected. The court held that labour shortages were within the range of the parties’ contemplation.

As can be seen from the previous two cases and many others the doctrine of frustration is hard to invoke. The most successful pleas of frustration are wartime cases and they usually involve disruptions to shipping. There are also the famous coronation cases which involve entertainment planned for the coronation of Edward VII which were cancelled due to illness. An example of one of these cases is Krell v Henry which involved the hiring of a flat for a few days at a high rent. No motive for this was stated in the actual contract but it was in fact to watch the coronation procession. The cancellation of the coronation was enough to falsify an assumption underlying the contract, and hence to terminate it. Another example of a coronation case is Herne Bay Steamboat v Hutton. The defendants hired a boat from the plaintiff to tour the fleet at anchor at the time set for ceremonies to celebrate the coronation. Unlike Krell v Henry, however, the arrangement was still workable.

Another aspect of the doctrine is self-induced frustration; frustration cannot be pleaded by the party who is responsible for the event whether deliberately or negligently. This rule is applied strictly. No-one who could have performed a contract can say that it is frustrated. The reasonableness of carrying out a contract is irrelevant nor is it a defence that the defendants cannot perform all their contracts as can be seen in The Super Servant Two [1990]. In this case the defendant hired out two specialised vessels; SS1 and SS2. They contracted with the plaintiff to use one of their vessels but never specified which one. The defendants intended on using SS2 so subsequently allocated the SS1 to other contracts. The SS2 then sank and the defendants claimed that the contract was frustrated but the court held that the doctrine of frustration did not operate to remove their liability under the contract. Another example of self-induced frustration can be seen in Byrne v Limerick Steamship Co. Ltd. where failure to obtain a war permit did not constitute frustration of the contract.

If we apply the doctrine to this situation and compare it to previous case law we can decide whether Finn has a valid argument. I think it is safe to say that both parties assumed that the wine license would be obtained before the concert could go ahead as the whole event is for Finn’s wine club, and Finn had informed Joe that he intended on serving food and wine to the entire audience. This is similar to the case of Krell v Henry. The question does not give a lot of information of how important both parties viewed obtaining the license was and how they decided that Finn was the one to try and obtain it. On the facts given it was Finn’s duty to obtain the license and in failing to do so he claimed that the contract had been frustrated. Not obtaining the license should have been reasonably foreseen by both parties and should have really been factored into the contract. If we look at the case of Neville v Guardian above the defendant’s failure to secure satisfactory access to his property did not amount to frustration. In the case at bar the reason for not obtaining the license was due to Finn’s negligence in filling out the paperwork for the application. Therefore Joe cannot be blamed for this, nor can we blame the circumstances/state of affairs, it was in fact Finn’s fault. Finn is therefore claiming that the contract has been frustrated because of his own actions, and failure to perform his part of the contract. As stated above frustration cannot be pleaded by the party who is responsible for the event whether deliberately or negligently. It may seem unfair to Finn to force the carrying out of the contract because it means he will lose €3, 000 and not even be able to hold the event he wanted to while Joe is still making a profit and may have been able to use the theatre for something else that day, but the court does not consider what is fair and reasonable in these cases.

Another aspect to consider in this question is whether Joe’s claim that Finn’s statement constituted a repudiatory breach as it would entitle Joe to treat the contract as repudiated and sue for damages. A breach occurs where, without lawful excuse, a party fails or refuses to perform a contractual obligation. If it is found to be repudiatory breach then at the instant of discharge, when Finn cancelled the contract, the duty to perform the contract is replaced by a duty to compensate for the lost performance. This can be seen in the case of Hyundai v Papadopoulos where the plaintiffs, shipbuilders, were building a ship for the defendants and were being paid as each stage in a timetable was reached. If the buyers fail to make a payment then the plaintiffs are entitled to all the payments up to and including the payment the buyers failed to make but neither party ha to perform after that. However, the plaintiffs may sue for loss in profits. Therefore the contract creates rights up to the point of discharge but not after it. The innocent party also gets a right to sue for loss of profit which they may or may not exercise. If a sufficiently serious breach has been committed the innocent party has the right to discharge but the contract remains in force until the right is exercised. It may be in the innocent party’s interests to keep the contract alive. The right must be exercised unequivocally and silence is rarely unequivocal. It was held to be unequivocal in the case of Santa Clara which involved a contract for the sale of propane. The propane was going to be delivered late which was a breach of contract. A telex was sent repudiating the contract and no reply was sent, silence was held to be acceptance of the repudiation. There is a basic rule that the innocent party has to terminate the contract but there are two exceptions to the rule:

(i)         Where the co-operation of both parties is needed; e.g. an employment contract

(ii)        Where the innocent party has no legitimate interest in continuing.

So if the innocent party insist on performing, but it forces good or services onto a party who has no use for them, then the court may rule that there is “legitimate interest” in doing so and so the innocent party must terminate the contract.

If one party informs the other that he is refusing or will fail to perform their contractual obligations before performance is due then it may be regarded as anticipatory breach. If this is the case there is no breach of contract but under the doctrine of anticipatory breach the refusal gives a right to terminate. The innocent party may affirm the contract, where there is a “legitimate interest”, or terminate. The classic case in favour of anticipatory breach is Hochester v De la Tour, whereby an agreement made in May for the plaintiff to commence work on June 1^st was terminated by a letter sent late in the month of May. The court held that the plaintiff could sustain her action prior to June 1st; since there had been a clear breach of an existing promise, albeit an existing promise to undertake a future act. The courts are, however, slow to exercise relief for claims of anticipatory breach and will normally require either express evidence of the anticipatory breach, as above, or very strong evidence of an implicit nature. In Athlone Rural DC v Campbell proof of the express intention of the defendant not to proceed with a contract partly underway took the form of a letter stating that the defendant (the District Council) no longer required the plaintiff to complete the work in question. The express or implied conduct must repudiate the contract in its entirety and not merely arise due to a dispute as to the true construction of the contract in question. Two cases which illustrate this point are: Federal Commerce and Navigation v Molena Alpha and Woodar Investment Development v Wimpey Construction. In the former, acting on legal advice that was erroneous, the defendant took steps which the plaintiffs believed amounted to an effective repudiation of the contract in question. Here the defendant party genuinely thought that such rights existed under the contract; nonetheless the HOL held that the acts constituted an effective repudiation. In the latter case, on similar facts, the defendants’ belief as to the construction of the contract led to acts that the plaintiff believed amounted to repudiatory breach. Again, the actions arose from a genuine but mistaken view of the law with respect to the contract. However, the court here held for the defendants, repudiation did not occur. The latter case seems to be a more accurate statement of the law. The facts of each case must be examined. In the former case the breach had immediate consequences for the plaintiff and there was little time in which to react. The latter case was different in that the completion date of the contract was some time away and, therefore, there was sufficient time to have the issue resolved by the courts without exercising self help remedies of repudiation of an anticipatory nature.

If it was found in this case that Finn breached his contractual obligations then the contract may be discharged and Finn may be forced to pay damages to Joe, up to €2000, which was the remainder owed to him, minus Joe’s own expenses. It seems that it was Finn’s duty to acquire the wine license for the event and in negligently failing to do so Finn may have breached the contract.  Finn cancelled the contract two days before the day of the event/performance this may in fact constitute an anticipatory breach as in the case of Hochester v De la Tour mentioned above. If it in fact anticipatory breach and Joe attempts to repudiate the contract on the grounds of repudiatory breach, then there may be a chance of Finn escaping repudiation as those grounds may be found to be insufficient. An example of a similar situation can be seen in Panchaud Freres v Etablissements General Grain Co.

However comparing the case of Woodar Investment Development v Wimpey Construction to this case, one may argue that Finn’s genuine but mistaken belief that, in not acquiring the wine license, the contract was frustrated may mean that the contract is not repudiated at all as he genuinely believed he had a lawful excuse to escape his contractual obligations. This may be a valid point but I feel that it would be a hard one to argue because similar to Federal Commerce and Navigation v Molena, Finn’s breach, which was only two days before the event was to take place, would have immediate consequences on Joe and time would not allow them to resolve the dispute in court.

In conclusion, Finn’s claim of frustration of the contract is erroneous as it was his negligent acts that led to the problem. As it was only two days before the date the contract was to commence and he genuinely believed he had a lawful excuse, I believe Finn’s statement may be found to constitute an anticipatory breach of their contract and it may be argued that Joe cannot repudiate the contract as he is attempting to do so on the wrong grounds. But this is being quite hopeful as the courts have the “…liberty to blow hot and cold…” in cases like this. Therefore it is most likely that the contract shall be discharged and Finn will be liable to pay damages for loss in profits to Joe.